AT&T; Reassures Investors About Value of Merger

Stung by a continuing plunge in its stock, AT&T; Corp. on Friday went out of its way to reassure investors that its $46.5-billion merger with Tele-Communications Inc. wasn’t too expensive.

Just two days after explaining the deal to financial analysts, AT&T; was back on the phone. In the nearly two-hour teleconference, top AT&T; and TCI brass stressed that they expected to gain substantial new business as a result of offering consumers packages of advanced telephone services and high-speed Internet access.

For example, AT&T; expects $3.4 billion in extra revenue and cost savings from long-distance, cable TV and other services by 2002. AT&T; hopes to cut costs in sales, marketing and other areas by offering five or six services to millions of consumers in a single package.

“I have no buyer’s remorse,” AT&T; Chairman C. Michael Armstrong told financial analysts during the teleconference Friday afternoon.

Trying to further reassure analysts, Armstrong said the company didn’t expect another large acquisition to help it expand its telecommunications business to overseas markets.

Despite the reassurances, AT&T;’s stock continued to slip and closed down $1.25, or more than 2%, at $56.75 as the most active issue on the New York Stock Exchange. All told, AT&T; shares have sunk 13.2% since the company on Wednesday announced plans to buy TCI, aiming to help the cable giant revamp its network to deliver a range of voice, video and data services to millions of consumers.

Some investors in AT&T;’s stock, the nation’s most widely held, worry that the company won’t recoup any time soon the billions of dollars it’s likely to spend for the network upgrade--which will depress earnings for three years. Also worrisome is a spotty track record other companies have had in trying to send phone calls over cable TV lines into homes.

Shareholders also are concerned by AT&T;’s plans to start trading three stocks instead of one in the new entity. The new company would trade a main AT&T; stock and two “tracking” stocks, which are designed to move with the earnings of individual segments of a large corporation. And the $46.5-billion deal includes the assumption of about $11 billion of TCI debt.

If AT&T;’s stock price continues to drop, it could raise concerns among TCI investors--particularly TCI Chairman John Malone, who owns 49% of the voting shares in TCI--that it isn’t getting paid enough. When the deal was announced Wednesday morning, AT&T; offered TCI $50.71 for each of its shares; by the close of trading Friday the offer was worth $44.02 per TCI share.

“That’s a markdown for the TCI shareholders right off the bat,” said Chris Mines, an analyst with Forrester Research Inc. in Cambridge, Mass.

“AT&T; is issuing a boatload of new stock to pay for this acquisition. That dilutes AT&T;’s earnings per share for its current shareholders,” Mines said.